Industry groups are warning that a ban on embedded commissions would cut off some advisors and diminish public access to retirement savings and financial advice.

The Financial Advisors Association of Canada, or Advocis, suggests in a release Wednesday that a ban on the commissions would be another threat to an industry squeezed by technology and increased regulation. After the U.K. banned embedded commissions, the group says, the number of advisors dropped by 25% and banks cancelled advisory services for clients who did not have significant funds to invest. It says a ban would “erode access to financial advice for million of Canadians.”

The group was reacting to the CSA’s long-anticipated consultation paper released Tuesday, which indicates the regulator will consider a ban on embedded commissions. CSA says they raise conflicts, limit investor awareness and don’t align with the services provided to investors.

Advocis also cites a study from the University of Calgary’s School of Public Policy that concluded a ban would threaten Canadians’ retirement savings, given data showing Canadians without advisors save 45% less than those who do.

In its forthcoming comments for the CSA consultation, Advocis says it will argue for the creation of a legally recognized profession for all advisors as an alternative to the proposed ban.

IFIC, representing the investment funds industry, agrees that the reforms could disrupt access to investment advice for the “roughly 4.5 million Canadian households” that now pay their investment fund fees through embedded commissions.

“Both regulators and governments should understand whether the cost of banning embedded commissions is proportionate to the regulatory objective of mitigating conflicts of interest,” IFIC president Paul Bourque says in a statement.

He adds: “Many middle class investors (those with less than $100,000 in assets) who make up the largest population of investors will have to choose between paying higher fees and foregoing financial advice.”

Bourque says it’s not clear from the research that embedded commissions are harmful, and existing rules already prohibit potential conflicts.

“If regulators have concerns about specific practices, they already have the tools they need, and we encourage regulators to use them,” says Bourque.

The Portfolio Management Association of Canada (PMAC) supports a ban.

“We believe that clients’ interests are best served by full transparency to help them understand what they are paying for,” Michael Mezei, PMAC board director, says in a statement. Portfolio managers charge fees directly to clients, he says, with those fees clearly established at the beginning of the relationship.

Why is the Portfolio Management Association ignoring the facts presented by the surveys and statistics that banning embedded commissions will generate more negative and detrimental effects on those Canadians with portfolios of approximately $100,000.00 and less? There’s is opinionated versus facts. CMRII takes care of explaining and demonstrating the costs involved which by they way is standard across the industry which eliminates any perceived favoritism or reason to move assets for commission basis, fund selection would be ( and is with myself and many colleagues ) based on client needs, performance, asset allocation,etc criteria.
I work with families in this asset category and believe me they benefit by embedded commissions because;
1- they can only afford $100 – $150 , some even less per month to invest for their retirement, fees on top would detract from their savings, so where is the difference, it’s different forms of paying for service which people should have the right to choose ? It lies in the fact that they now receive ongoing professional advice not only on investments but other invaluable related services and advice.
2- people aren’t stupid, they know we must get paid, if I don’t tell them how we are paid, they will ask , they understand, nobody works for nothing.
3- they are satisfied with the returns on investments and the added value of advice received
4- who are the regulators to dictate to the public how and what choices they have when purchasing their investments? This is non democratic and against our rights of freedom to choose. They will have the facts with CRMII .
5- Let’s not stop here, the regulators should continue their warpath and demand the same with GIC’s, Mortgages, Loans, Reverse Mortgages……